White Mountains Insurance Group (WTM)

White
Mountains ended the first quarter of 2009 with an adjusted book value per share
of $352, which was essentially flat from December 31, 2008, including
dividends. White Mountains reported an adjusted comprehensive net loss of $9
million in the first quarter of 2009 compared to break-even in the first
quarter of 2008.

OneBeacon
ended the first quarter of 2009 with a book value per share of $12.30, which
was a 3% increase from December 31, 2008, including dividends. OneBeacon reported a GAAP
combined ratio of 94% for the first quarter of 2009 compared to 100% in the
first quarter of 2008. Both periods included 3 points of net favorable loss
reserve development, while the first quarter of 2009 had less than one point of
catastrophe losses compared to 4 points of catastrophe losses in the first
quarter of 2008, primarily related to tornados in the Southeastern United
States. White Mountains Re reported a GAAP combined ratio of 80% for the first
quarter 2009 compared to 94% for the first quarter 2008. Both periods experienced relatively benign
weather and light catastrophe activity. The improved combined ratio in the
first quarter of 2009 was driven by 3 points of favorable loss reserve
development in the first quarter of 2009 compared to 12 points of adverse loss
development in the first quarter of 2008.
Esurance reported a GAAP combined ratio of 103% in the first quarter of
2009 compared to 113% in the first quarter 2008. This improvement was due
mainly to selective rate increases in late 2007 and early 2008, as well as
lower claims frequency resulting from less driving by insureds as a result of
the recessionary environment and due to lower acquisition expenses. Operating
income at AFI improved to $2 million in the first quarter of 2009 compared to
less than $1 million the fourth quarter of 2008. White Mountains GAAP pre-tax
total return on invested assets was -0.1% for the first quarter of 2009
compared to 0.3% for the first quarter of 2008.
The total investment portfolio, excluding currency movements, managed a
small positive return of 0.5%. Additionally, White Mountains results for the
first quarter of 2009 included $40 million of unrealized foreign currency
exchange losses reported as other comprehensive losses, resulting primarily
from the strengthening of the U.S. dollar in comparison to the Swedish krona.
This compares to $58 million of unrealized foreign currency exchange gains
reported in the first quarter of 2008 resulting primarily from the weakening of
the U.S. dollar in comparison to the Swedish krona.

Total
net written premiums decreased to $992 million for the first quarter of 2009
compared to $1,016 million in the comparable 2008 period, as an increase at
OneBeacon was more than offset by decreases at White Mountains Re and Esurance.
OneBeacons net written premiums increased 10% to $469 million in the first
quarter of 2009, driven primarily by premiums from its collector car and boat
business that was started in the second quarter of 2008. White Mountains Res
net written premiums decreased 14% to $309 million in the first quarter of
2009. A significant portion of the decline was in property catastrophe exposed business where White
Mountains Re continues to reduce its net exposures. Esurances net written
premiums decreased 7%
to $214 million in the first quarter of 2009 as lower advertising spending and higher rates
contributed to reduced new business sales volume.

OneBeacon
ended the first quarter of 2009 with a book value per share of $12.30, a 3%
increase for the three months ended March 31, 2009, and a 21% decrease
from its adjusted book value per share at March 31, 2008, in each case
including dividends. OneBeacons GAAP combined ratio decreased to 94% for the
first quarter of 2009 from 100% for the first quarter of 2008. Both periods
included 3 points of net favorable loss reserve development primarily in
specialty lines and in commercial lines.
In the first quarter of 2009, favorable loss reserve development in
specialty lines and in commercial lines was partially offset by adverse loss
reserve development in personal lines, primarily related to personal injury
protection litigation at AutoOne. The first quarter of 2009 had less than one point of
catastrophe losses, while the first quarter of 2008 included 4 points of
catastrophe losses, primarily related to tornados in the Southeastern United
States.

OneBeacons
net written premiums increased 10% in the first quarter of 2009 to $469
million, compared to $426 million in the first quarter of 2008. This increase was due to increased premiums
in specialty lines, primarily from OneBeacons collector car and boat business
that it began writing in the second quarter of 2008, Entertainment Brokers
International Insurance Services (EBI), which OneBeacon acquired in the third
quarter of 2008, and from OneBeacon Professional Partners (OBPP). This increase was partially offset by
decreases in personal lines, where $14 million of premiums were ceded under a
new quota share treaty designed to reduce property catastrophe exposure from
homeowners business written in the Northeast (see Personal
lines discussion below), and in commercial lines.

Specialty lines. Net written premiums for specialty lines
increased 61% to $179 million in the first quarter of 2009 from $111 million in
the first quarter of 2008. The increase was primarily due to $28 million
in net written premiums from OneBeacons collector car and boat business that
it began writing in the second quarter of 2008. The increase was also due to
$15 million in writings from EBI, which OneBeacon acquired in the third quarter
of 2008, as well as a $14 million increase from OBPP and an $11 million
increase from Specialty Accident and Health.

The
specialty lines combined ratio for the first quarter of 2009 decreased to 71%
from 87% for the first quarter of 2008. The loss and LAE ratio decreased 23
points to 32% while the expense ratio increased 7 points to 39%. The decrease
in the loss and LAE ratio was mainly due to 17 points of favorable loss reserve
development in the first quarter of 2009 related to lower than expected
severity in professional liability, compared with 3 points of favorable loss
reserve development in the first quarter of 2008, also primarily related to
professional liability. Further, the current
accident year loss and LAE ratio including catastrophes decreased 10 points as
compared to the prior year period due to better current accident year loss
results across all specialty lines of business. The increase in the expense
ratio was mainly due to changes in mix of business within the specialty lines
businesses and the mix of products offered within those businesses. OneBeacons
collector car and boat business and some of its other newer specialty lines
businesses pay higher commissions than OneBeacons older specialty lines
businesses.

Commercial lines. Net written premiums for commercial
lines decreased 6% to $159 million in the first quarter of 2009 from $170
million in the first quarter of 2008. The decrease was primarily due to a $15
million decrease in OneBeacons traditional middle market division, reflecting
the more competitive marketplace, partially offset by increased writings at
OneBeacon Specialty Property.

The commercial lines
combined ratio for the first quarter of 2009 decreased to 95% from 110% for the first quarter
of 2008. The loss and
LAE ratio decreased 14 points to 58%, while the expense ratio decreased 1 point
to 37%. The decrease in the loss and LAE ratio was due to lower catastrophe
losses and increased favorable loss reserve development. The first quarter of 2009 included 1 point of catastrophe losses
compared to 8 points in the first quarter of 2008, which primarily related to tornados in the
southeastern United States. The first quarter of 2009 included 10 points of favorable
loss reserve development compared to 5 points in the first quarter
of 2008. In addition,
current accident year non-catastrophe losses decreased 3 points as compared to
the first quarter of
2008, primarily related to lower than expected severity on commercial
multi-peril non-catastrophe losses.

Personal lines. Net written premiums for personal lines
decreased 9% to $132 million in the first quarter of 2009 from
$145 million in the first quarter of 2008. In traditional personal lines,
net written premium decreased 8% to $101 million. In an effort to further
reduce its property catastrophe exposure in the Northeast, OneBeacon entered
into a 30% quota share agreement with a group of reinsurers that runs from January 1,
2009 through December 31, 2009. During the first quarter of 2009,
OneBeacon ceded approximately $14 million of written premiums from its
Northeast homeowners business written through OneBeacon Insurance Company and
its subsidiary companies, along with Adirondack Insurance and New Jersey Skylands
Insurance Association in New York and New Jersey, respectively. Further, net
written premiums at AutoOne decreased 14% to $31 million due to declines in New
Yorks assigned risk pool. With respect to the New York assigned risk pool, market trends indicate that assigned risk
volumes are expected to further decline to approximately $133 million in
2009, which would be down from $150 million in 2008, $179 million in 2007 and
$253 million in 2006. OneBeacon expects a reduction in AutoOnes premium
volume reflective of these trends.

The personal lines
combined ratio for the first quarter of 2009 increased to 117% from 96% for the
first quarter of 2008. The loss and LAE ratio increased 24 points to 89%, while
the expense ratio decreased by 3 points to 28%. The increase in the loss and
LAE ratio was primarily due to 19 points of adverse loss reserve development in
the first quarter of 2009, primarily related to an increased level of
litigation activity resulting in higher litigation-related expenses as well as
higher claim settlement costs with respect to personal injury protection
litigation at AutoOne. The first quarter of 2008 included 1 point of favorable
loss reserve development, primarily related to automobile liability losses in
traditional personal lines. The decrease in the expense ratio was primarily due
to lower policy acquisition expenses as a result of the quota share agreement
for OneBeacons Northeast homeowners business.

OneBeacon ended 2008 with
a book value per common share of $12.15, which represented a decrease of 22%
(including dividends) from adjusted book value per common share of $19.14 at December 31,
2007. This decrease is due primarily to a total return on invested assets of -13% during
2008. OneBeacons GAAP combined ratio increased to 95% for 2008 compared
to 93% for 2007. The increase in OneBeacons combined ratio was primarily due
to a 2 point increase in its loss and LAE ratio, which was driven by higher
catastrophe losses. The 2008 results included 3 points of catastrophe losses,
most of which related to hurricane Ike, compared to one point of catastrophe
losses in 2007. Favorable loss reserve development was 3 points in both 2008
and 2007. The favorable loss reserve
development in 2008 was primarily due to lower than expected severity for
professional liability in specialty lines and package business in commercial
lines, partially offset by adverse loss reserve development at AutoOne and in
run-off. The favorable loss reserve
development in 2007 was primarily due to lower than expected frequency for
professional liability in specialty lines and lower than expected severity for
automobile liability in personal lines, partially offset by adverse loss
reserve development for multiple peril and workers compensation, primarily for
accident years 2001 and prior.

Reserve reallocation.
During 2007, OneBeacon reallocated reserves from ongoing lines of business to
run-off reserves, particularly on run-off reserves for construction defect and
workers compensation related to accident years 2001 and prior. The reallocation
shifted $117 million of reserves from specialty lines ($88 million),
commercial lines ($6 million) and personal lines ($23 million) to
run-off claims. This reallocation had the effect of lowering the 2007 loss and
LAE and combined ratios for specialty, commercial and personal lines, but had
no net impact on OneBeacons overall results. The ratio discussions by line of
business that follow are based on the ratios as computed prior to the
reallocation of reserves to run-off claims. OneBeacon believes that a
presentation excluding the effect of the reserve reallocation on specialty,
commercial and personal lines loss and LAE ratios and combined ratios is
meaningful for investors to understand the performance of its underwriting
units during 2007.

Specialty lines. Net written
premiums for specialty lines increased 41% to $622 million in 2008 from $440
million in 2007. The increase was primarily due to $110 million in net written
premiums from OneBeacons specialty collector car and boat business that it
began writing in the second quarter of 2008. The increase was also due to $15
million in writings from EBI, which OneBeacon acquired in the third quarter of
2008, as well as growth in OneBeacons A&H, OBGR, and OBPP businesses,
where premiums increased by $53 million.

The
specialty lines combined ratio for 2008 decreased to 87% from 88% for 2007. The
loss and LAE ratio decreased 7 points to 51% while the expense ratio increased
6 points to 36%. The decrease in the loss and LAE ratio was mainly due to 10
points of favorable loss reserve development in 2008 primarily related to lower
than expected severity in professional liability, compared to 3 points in 2007
primarily related to lower than expected frequency in professional liability.
Partially offsetting this decrease was 2 points of catastrophe losses in 2008,
primarily from hurricane Ike, compared to 1 point of catastrophe losses in
2007. The increase in the expense ratio was mainly due to changes in mix of
business from 2007 to 2008. In
particular, OneBeacons specialty collector car and boat business and some of
its other new specialty lines businesses pay higher agent commissions than most
other products within specialty lines. Also, at OBPP, increased writings of
long-term care business and decreased writings of provider excess insurance
business, which carry a higher and lower commission ratio,
respectively, have caused the expense ratio to increase. In addition, during the year ended December 31,
2008, OneBeacon incurred additional transition costs associated with the new
management team at OBPP.

Commercial lines. Net written
premiums for commercial lines decreased 2% to $722 million in 2008 from $733
million in 2007. The decrease was primarily due to a $29 million decrease in
the middle market division, reflecting the more competitive marketplace,
partially offset by an increase of $18 million in the small business division,
principally driven by small business package products.

The
commercial lines combined ratio for 2008 increased to 96% from 88% for 2007.
The loss and LAE ratio increased 9 points to 60%, while the expense ratio
decreased 1 point to 36%. The increase in the loss and LAE ratio was due in
part to a 5 point increase in non-catastrophe losses in 2008, mainly due to
higher large losses, including losses in the middle market division related to
winter weather in the northeastern United States experienced in the first
quarter and large property losses in the third quarter, compared with an
unusually low level of large losses experienced in 2007. Additionally, the loss
and LAE ratio included 5 points of catastrophe losses in 2008, compared to 1
point in 2007. The 2008 catastrophe
losses primarily related to hurricane Ike in both the middle market and small
business divisions and losses from tornados in the southeastern United States
in the middle market division in the first quarter. Expenses for 2008 were
essentially flat compared to the prior year. 2007 included a 1 point benefit
from the partial settlement of qualified pension plan liabilities, which was
offset by 1 point of office consolidation costs.

Personal lines. Net written premiums for personal lines
decreased 10% to $619 million in 2008 from $690 million in 2007. The decrease was primarily due to $60 million
less in traditional personal lines net written premiums. This decrease was primarily due to the
decision to cease writing business in Houston General Insurance Exchange (Houston
General) in late 2007, lower new business associated with coastal restrictions
implemented at Adirondack, higher ceded reinsurance premiums at Adirondack,
lower premium volume from the involuntary market in Massachusetts, and the
discontinuation of surplus lines business. Net written premiums at AutoOne
decreased $15 million due to significant declines in New Yorks assigned risk
pool. With respect to the New York assigned risk pool, market trends indicate
that assigned risk volumes are expected to be approximately $150 million in
2009, which was consistent with 2008 and down from $179 million in 2007 and
$253 million in 2006. With respect to the New Jersey assigned risk pool, market
trends indicate that the assigned risk volumes are expected to decline to
approximately $35 million in 2009, down from $61 million in 2008, $77 million
in 2007 and $141 million in 2006. OneBeacon expects a reduction in AutoOnes
2009 premium volume reflective of these trends.

The
personal lines combined ratio for 2008 increased to 96% from 94% for 2007. The
loss and LAE ratio increased 4 points to 64%, while the expense ratio decreased
2 points to 32%. The increase in the loss and LAE ratio was primarily due to 1
point of adverse loss reserve development in 2008, mainly on personal
automobile liability at AutoOne, compared to 3 points of favorable loss reserve
development in 2007, primarily related to automobile liability losses in
traditional personal lines and at AutoOne. The decrease in the expense ratio
was primarily due to decreased other underwriting expenses as a result of the
decision to cease writing business in Houston General and actions taken in 2007
to better align personal lines staffing with business needs. The expense ratio
for 2007 also included a 1 point benefit from a state premium tax refund and a
1 point benefit related to the partial settlement of our qualified pension plan
liabilities, partially offset by 1 point of office consolidation costs.

Effective
January 1, 2009, in an effort to further reduce its property catastrophe
exposure in the Northeast, OneBeacon entered into a quota share agreement with
a group of reinsurers, under which OneBeacon will cede 30% of its Northeast
homeowners business written through OBIC and its subsidiary companies, along
with Adirondack and New Jersey Skylands Insurance Association in New York and
New Jersey, respectively. The program provides supplemental protection to
previously established reinsurance. The reinsurers are all rated A or better
by A.M. Best. The program is expected to result in ceded premiums of
approximately $65 million for all of 2009.

Run-off. Run-off business generated an underwriting
loss of $22 million in 2008, compared to an underwriting loss of $156 million
($39 million excluding a $117 million increase to loss and LAE reserves
resulting from the reserve reallocation) in 2007. 2008 includes incurred loss and LAE of $21
million ($9 million of which related to the Liberty Mutual settlement described
in Part I, Item 3Legal Proceedings),
compared with $33 million (excluding the reserve reallocation) in 2007. 2007
also included a $5 million benefit from the partial settlement of qualified
pension plan liabilities.

Overview

OneBeacon grew its adjusted book value per
share by 16.2% during 2007, including dividends. OneBeacons GAAP combined
ratio decreased to 93% for 2007 compared to 96% for 2006. The improved
underwriting results in 2007 reflected lower catastrophe losses and favorable
loss reserve development. The 2007 results also benefited from a
$26 million gain from OneBeacons partial pension settlement (See Note 11Retirement and Postretirement Plans).

The decrease in OneBeacons 2007 GAAP
combined ratio was primarily due to a 3 point decrease in its loss and LAE
ratio. The 2007 results included 3 points of favorable loss reserve
development due to lower than expected frequency for professional liability in
specialty lines and lower than expected severity for automobile liability in
personal lines, partially offset by adverse loss reserve development for
multiple peril and workers compensation, primarily for accident years 2001 and
prior. The 2006 results included 1 point of adverse loss reserve
development, mainly due to catastrophe losses, primarily related to hurricanes
Katrina and Wilma and two 2004 catastrophes, partially offset by favorable loss
reserve development on non-catastrophe losses in specialty lines and commercial
lines.

2007 included an $11 million gain from
the sale of one of OneBeacons inactive licensed insurance subsidiaries. 2006
included a $30 million gain on the sale of renewal rights of Agri to QBE.
Partially offsetting the Agri gain was a $13 million pre-tax loss on the
sale of OneBeacons investment in MSA (after tax, the MSA exchange resulted in
an $8 million net realized gain).

Specialty lines. Net written premiums for specialty lines
increased 1% to $440 million in 2007 from $434 million in 2006.
Excluding the business transferred in the Agri Sale, net written premiums
increased by 19% in 2007 due to a $35 million increase in net written
premiums in specialty liability products at OBPP, a $19 million increase
in net written premiums at IMU and $15 million in net written premiums in
the Accident & Health business, which commenced operations in 2007.

The
specialty lines combined ratio for 2007 decreased to 88% from 89% for 2006.
The loss and LAE ratio increased 3 points to 58%, primarily due to unfavorable
large non-catastrophe current accident year losses in the Agri run-off
business, while the expense ratio for 2007 decreased 4 points to 30%,
primarily due to a 3 point reduction of commission expense from fees
received in 2007 from QBE for fronting services performed on renewals of Agri
business.

Commercial lines. Net written premiums for commercial lines
increased 2% to $733 million in 2007 from $722 million in 2006. The
increase was mostly due to a $36 million increase in net written premiums
in the small business division, principally driven by small business package
products. Partially offsetting this increase was a $24 million decrease in
the middle market division, due primarily to lower premiums at OBSP as a result
of OneBeacons strategy to manage its exposure to potential catastrophe losses.

The commercial lines combined ratio for 2007
decreased to 89% from 95% for 2006. The loss and LAE ratio decreased 4 points
to 52%, primarily due to 4 points of favorable loss reserve development in
2007, mostly from property and general liability claims, compared to 2 points
of adverse loss reserve development in 2006, primarily at OBSP related to hurricanes
Katrina and Wilma and two 2004 catastrophes. This decrease was partially offset
by a 1 point increase in the current accident year loss ratio in 2007,
driven by the pricing environment. The expense ratio decreased by 2 points to
37% in 2007, primarily due to lower policy acquisition expenses as a result of
an increased deferral rate of commercial lines policy acquisition costs from
the expansion into new states, as well as a 1 point favorable impact from the
partial pension settlement. Both periods included 1 point of office
consolidation costs.

Personal lines. Net written premiums for personal lines
decreased 14% to $690 million in 2007 from $801 million in 2006. In traditional personal lines, net written
premiums decreased due to an increasingly competitive auto market,
Massachusetts state-mandated rate decreases and the decision to cease writing
business in Houston General in late 2007. Net written premiums for Houston
General were $15 million in 2007, compared to $4 million in 2006. Further, net
written premiums at AutoOne decreased due to significant declines in New Yorks
and New Jerseys assigned risk pools, as described above. The reduction in
AutoOnes premium volume is reflective of these trends.

The personal lines combined ratio for 2007
decreased to 94% from 96% for 2006. The loss and LAE ratio decreased 4 points
to 60%, primarily due to 3 points of favorable loss reserve development in
automobile liability in traditional personal lines and at AutoOne, compared to
1 point of adverse loss reserve development in 2006. Partially offsetting this
decrease was higher large loss activity experienced in the first half of 2007.
The expense ratio increased by 2 points to 34% from 32% in 2006. The increase
was primarily due to the adverse effect of a lower earned premium base compared
to 2006. The expense ratio in 2007 included the impact of non-recurring
favorable items in 2007, including 1 point from a state premium tax refund and
1 point from the partial pension settlement. The 2006 expense ratio also
included the benefit of non-recurring favorable items, including 1 point from a
reduction of contingent commission accruals and 1 point related to the
favorable settlement of a state franchise tax audit. Both periods included 1
point of office consolidation costs. In addition, the expense ratio for 2007
included 1 point of expense incurred in connection with the decision to cease
writing business in Houston General Insurance Exchange and actions taken to
reduce the personal lines workforce.

Run-off. For 2007, run-off business generated an
underwriting loss of $39 million (excluding $117 million from the
reserve reallocation), compared to an underwriting loss of $44 million in
2006. The results for 2007 included a $5 million benefit from the partial pension
settlement.

White
Mountains ended the third quarter of 2008 with an adjusted book value per share
of $405, which represented decreases of 9%, 9% and 6% for the three, nine and
twelve months ended September 30, 2008, including dividends. The reduction
is due mainly to a -5.1% total return on invested assets during the third
quarter of 2008. In addition, underwriting results for the quarter were
impacted by after tax catastrophe losses of $109 million. The strengthening of
the U.S. dollar in comparison to the Swedish Krona also generated significant
foreign currency translation losses during the quarter. White Mountains
reported adjusted comprehensive net losses of $409 million and $426 million for
the third quarter and first nine months 2008, compared to adjusted
comprehensive net income of $161 million and $354 million in the same periods
of 2007.

OneBeacon ended the third quarter of 2008 with an adjusted book value
per share of $14.44, which represented decreases of 13%, 11%, and 8% for the
three, nine, and twelve months ended September 30, 2008, including dividends.
The reduction is due mainly to a -7.1% total return on OneBeacons invested
assets during the third quarter of 2008. OneBeacon reported GAAP combined ratios of
100% and 98% for the third quarter and first nine months 2008 compared to 84%
and 93% in the third quarter and first nine months 2007. These increases were
primarily due to ($28 million) of catastrophe losses reported in the third
quarter of 2008 and the impact of non-recurring items that benefited OneBeacons
combined ratio by 7 points in the third quarter of 2007. White Mountains Re
reported GAAP combined ratios of 127% and 111% for the third quarter and first
nine months 2008, compared to 94% for both the third quarter and first nine
months 2007. These increases were primarily due to $112 million and $145
million of catastrophe losses (44 points and 19 points) reported in the third
quarter and first nine months of 2008 and $55 million of net adverse loss
reserve development recorded by White Mountains Re in the second quarter of
2008 resulting from a comprehensive review of its loss and LAE reserves (see Summary of Operations by Segment
below for further discussion). Esurance reported GAAP combined ratios of 102%
and 107% in the third quarter and first nine months 2008 compared to 118% and
114% in the third quarter and first nine months 2007, as selective rate
increases and lower claims frequency have offset rising severity costs. White
Mountains GAAP pre-tax total return on invested assets was -5.1% and -3.8% for
the third quarter and first nine months 2008 compared to 2.1% and 5.6% for the
third quarter and first nine months 2007.

Total
net written premiums increased to $955 million for the third quarter of 2008
compared to $942 million in the comparable 2007 period, as increases at
OneBeacon and Esurance were partially offset by a decrease at White Mountains
Re. Total net written premiums for the nine months ended September 30,
2008 decreased to $2,913 million compared to $2,944 million in the 2007 period,
as increases at OneBeacon and Esurance were more than offset by a decrease at
White Mountains Re. OneBeacons net written premiums were $534 million for the
quarter and $1,489 million for the first nine months of 2008, increases of 4%
over both comparable periods of 2007. The increase for both periods was driven
by premiums from its new collector car and boat business. White Mountains Res
net written premiums were $208 million for the quarter and $783 million for the
first nine months of 2008, decreases of 6% and 13% from the comparable periods
of 2007. These decreases occurred in most lines of business, especially in
casualty, and were primarily due to pricing, terms and conditions for certain
accounts that no longer met White Mountains Res underwriting guidelines.
Esurances net written premiums increased by 2% and 7% for the third quarter
and first nine months 2008, to $213 million and $641 million, respectively,
when compared to the same periods in 2007. Esurances growth rate has slowed
due to a decline in shopping for personal auto insurance and due to selective
rate increases implemented over the first nine months of 2008.

White Mountains ended the
second quarter of 2008 with an adjusted book value per share of $444, which was
essentially flat for the three and six months ended June 30, 2008, and an
increase of 6% for the twelve months ended June 30, 2008, including dividends.
White Mountains reported an adjusted comprehensive net loss of $17 million for
both the three and six months ended June 30, 2008, compared to adjusted
comprehensive net income of $90 million and $193 million in the same periods of
2007.

OneBeacon reported a
combined ratio of 94% and 97% for the three and six months ended June 30, 2008
compared to 97% in both the three and six months ended June 30, 2007. White
Mountains Re reported a combined ratio of 114% and 104% for the three and six
months ended June 30, 2008, compared to 90% and 95% in the three and six months
ended June 30, 2007. These increases were primarily due to $55 million of net
adverse development recorded by White Mountains Re in the second quarter of
2008 resulting from a comprehensive review of its loss and LAE reserves (see Summary of Operations by Segment below for
further discussion) . Esurance reported a combined ratio of 105% and 109% in
the three and six months ended June 30, 2008 compared to 113% and 112% in the
three and six months ended June 30, 2007. White Mountains GAAP pre-tax total
return on invested assets was 0.4% and 0.9% for the three and six months ended
June 30, 2008 compared to 1.6% and 3.5% for the three and six months ended June
30, 2007.

Total net written premiums
were down slightly to $943 million and $1,958 million for the three and six
months ended June 30, 2008, compared to $950 million and $2,001 million in the
2007 periods, as increases at OneBeacon and Esurance were more than offset by
decreases at White Mountains Re. OneBeacons net written premiums were $530
million for the quarter and $955 million for the first six months, an increase
of 9% and 3% from the comparable periods of 2007. The increase for both periods
was driven by premiums from its new collector car and boat business. White
Mountains Res net written premiums were $215 million for the quarter and $575
million for the first six months of 2008, a decrease of 23% and 16% from the
comparable periods of 2007. These decreases occurred in almost every line of
business, especially in casualty, and were primarily due to pricing, terms and
conditions for certain accounts that no longer met White Mountains Res
underwriting guidelines. Esurances net written premiums increased by 6% and 9%
for the second quarter and first six months of 2008, to $198 million and $428
million, respectively, when compared to the same periods in 2007. Esurances
growth rate has slowed as it has reduced marketing expenditures and increased
pricing over the first six months of 2008.

White
Mountains ended the first quarter of 2008 with a fully diluted tangible book
value per share of $443, which was essentially flat for the quarter and an
increase of 9% for the twelve-month period ended March 31, 2008, including
dividends. White Mountains adjusted comprehensive net income was break-even
for the first quarter of 2008 compared to $103 million in the first quarter of
2007.

OneBeacon
reported a combined ratio of 100% in the first quarter of 2008 compared to 98%
in the first quarter of 2007. White Mountains Re reported a combined ratio of
94% for the first quarter of 2008 compared to 99% in the first quarter of 2007.
Esurance reported a combined ratio of 113% in the first quarter of 2008
compared to 111% in the first quarter of 2007, while increasing its written
premiums 11% over the first quarter of 2007. White Mountains GAAP pre-tax
total return on invested assets was 0.5% for the first quarter of 2008 compared
to 1.9% for the first quarter of 2007. Book value per share benefitted
significantly from the weakening of the U.S. dollar against the Swedish krona.

OneBeacon's pre-tax income for 2006 was $312 million compared to $332 million for 2005, and its GAAP combined ratio was 96% for 2006
compared to 98% for 2005. OneBeacon's 2005 results included the results of NFU prior to its sale on September 30, 2005. The inclusion of NFU in the results for the first nine months of 2005
reduced the 2005 combined ratio by one point. During 2005, OneBeacon reallocated $34 million of IBNR reserves from ongoing lines of business to run-off. This reallocation had the
effect of lowering the combined ratios for specialty, commercial and personal lines, but had no impact on OneBeacon's overall results.

Lower
adverse development on prior accident year losses caused OneBeacon's 2006 combined ratio to decrease four points from 2005. OneBeacon's 2006 results included $23 million of
adverse development on prior accident years compared to $95 million in 2005, which primarily related to 2002 and prior accident years. Lower current accident year catastrophe losses also caused
OneBeacon's 2006 combined ratio to decrease two points from 2005. OneBeacon's 2006 results included $29 million in current accident year catastrophe losses compared to $81 million in
2005, which included $69 million from hurricanes Katrina, Rita and Wilma. Offsetting these decreases was a one point increase from higher incentive compensation expenses in 2006 and a one point
increase from $20 million of expenses associated with actions taken to reduce long-term occupancy costs, including OneBeacon's move to its new U.S. headquarters in Canton,
Massachusetts. In addition, OneBeacon's 2005 results included a $54 million gain from the settlement of its retiree medical plan, which reduced the 2005 combined ratio by three points. The
retiree medical plan, which had been frozen in 2002, was terminated and an independent trust was established and funded to provide benefits to covered participants. These actions relieved OneBeacon of
its future retiree medical obligations and triggered recognition of the gain. The majority of the gain was recorded as a reduction of other underwriting expenses with a portion of the gain reflected
as a reduction in loss and LAE because a portion of the expense of the retiree medical program was allocated to the claims department.

OneBeacon's
total revenues decreased 8% in 2006 to $2,327 million from $2,534 million in 2005. The decrease was due principally to a 6% decrease in earned premiums in 2006,
primarily due to the aforementioned sale of NFU, which had $130 million of earned premium in 2005. Net investment income decreased to $188 million in 2006 compared to $242 million
in 2005, primarily due to the receipt of a $35 million special dividend on Montpelier Re common shares in the first quarter of 2005. Net realized investment gains increased to
$156 million in 2006 compared to $123 million in 2005. The 2005 period included a realized loss of $55 million due to an other-than-temporary impairment on
OneBeacon's investment in Montpelier Re common shares. Other revenues in 2006 included a pre-tax

53

gain
of $30 million from OneBeacon's sale of the renewal rights to its Agri business and a pre-tax loss on the exchange of its investment in MSA of $13 million (after tax,
the MSA exchange resulted in an $8 million net realized gain). Other revenues in 2005 included $34 million in gains recorded from the sales of two subsidiaries, NFU and Traders and
Pacific Insurance Company.

Specialty Lines. Net written premiums for specialty lines decreased by 20% to $438 million in
2006 from $549 million in 2005, mainly due to the aforementioned sales of NFU and Agri. Excluding NFU and Agri, specialty lines net written premiums increased $41 million, or 12%, from
2005. The increase was mainly due to a $30 million increase in net written premiums at OBPP to $179 million in 2006 from $149 million in 2005, principally driven by
long-term care and lawyers professional liability products. Net written premiums for all other specialty lines businesses increased modestly or were essentially flat when compared with the
prior year.

The
specialty lines combined ratio for 2006 increased to 89% from 87% for 2005. The increase was primarily due a higher expense ratio, which rose to 34% in 2006 from 31% in 2005. The
increased expense ratio was primarily due to a one point increase in incentive compensation expense in 2006 and the favorable impact in 2005 of the settlement of the retiree medical plan, which
lowered that year's expense ratio by two points. The loss and LAE ratio for 2006 was essentially flat when compared to 2005. Excluding the impact of the aforementioned reallocation of reserves to
run-off, which reduced the 2005 loss ratio by three points, the loss and LAE ratio improved in 2006.

Commercial Lines. Net written premiums for commercial lines increased by 10% to $718 million
in 2006 from $654 million in 2005, as net written premiums increased for both the middle market division and the small business division. The increase in net written premiums in the middle
market division was experienced in property and inland marine products as well as at OBSP. The increase in small business was experienced in small business package products.

The
commercial lines combined ratio for 2006 decreased to 95% from 99% for 2005. Lower catastrophe losses caused the commercial lines 2006 combined ratio to decrease six points from
2005. Commercial lines 2006 results included $31 million in current and prior accident year catastrophe losses, which included $21 million in losses incurred from hurricanes Katrina,
Rita and Wilma, compared to $64 million in 2005, which included $56 million in losses incurred from hurricanes Katrina, Rita and Wilma. Partially offsetting this decrease was the
favorable impact of one point related to the benefit of the settlement of the retiree medical plan in 2005 and two points related to the reallocation in 2005 of IBNR reserves to run-off.

Personal Lines. Net written premiums for personal lines decreased by 12% to $801 million in
2006 compared to $910 million in 2005. The decrease was primarily attributable to reduced writings at AutoOne due to the size of New York's assigned risk pool significantly decreasing and
reduced writings in traditional personal lines due to an increasingly competitive automobile market and state-mandated rate decreases in Massachusetts. With respect to the New York assigned risk pool,
assigned risk volumes declined to $253 million in 2006, down from $383 million in 2005 and $629 million in 2004. Assigned risk volumes in New Jersey are also expected to decline.
The assigned risk pool in New Jersey declined to $141 million in 2006, down from $247 million in 2005 and $375 million in 2004. OneBeacon expects a continued reduction in
AutoOne's premium volume in 2007 reflective of these trends.

The
personal lines combined ratio for 2006 increased to 96% from 92% for 2005. The loss and LAE ratio increased 1 point to 64% in 2006 from 63% in 2005, primarily due to favorable items
in 2005. The personal lines 2005 loss and LAE ratio included the benefit of the settlement of the retiree medical plan and the favorable impact of the reallocation of IBNR reserves to
run-off, which each reduced the loss and LAE ratio by approximately one point. The expense ratio increased to 32% in 2006, compared to 29% in the prior year, mainly due to increased
incentive compensation expenses of approximately one point in 2006 and the benefit of the settlement of the retiree medical plan in 2005, which decreased the 2005 expense ratio by approximately two
points. In addition, the 2006 expense ratio was higher than the 2005 expense ratio by approximately one point as expense reductions were not proportional to reductions in earned premiums.

Run-off. For 2006, run-off business generated an underwriting loss of
$44 million compared to an underwriting loss of $133 million in 2005. The 2005 results included $107 million in adverse development, mainly from 2002 and prior accident years,
which was primarily due to higher than anticipated defense costs and higher damages from liability assessments in general liability and multiple peril lines. As described above, 2005 also included a
reallocation of $34 million of IBNR reserves from ongoing lines of business to run-off.

54

Overview

OneBeacon's pre-tax income for 2006 was $312 million compared to $332 million for 2005, and its GAAP combined ratio was 96% for 2006compared to 98% for 2005. OneBeacon's 2005 results included the results of NFU prior to its sale on September 30, 2005. The inclusion of NFU in the results for the first nine months of 2005reduced the 2005 combined ratio by one point. During 2005, OneBeacon reallocated $34 million of IBNR reserves from ongoing lines of business to run-off. This reallocation had theeffect of lowering the combined ratios for specialty, commercial and personal lines, but had no impact on OneBeacon's overall results.

Loweradverse development on prior accident year losses caused OneBeacon's 2006 combined ratio to decrease four points from 2005. OneBeacon's 2006 results included $23 million ofadverse development on prior accident years compared to $95 million in 2005, which primarily related to 2002 and prior accident years. Lower current accident year catastrophe losses also causedOneBeacon's 2006 combined ratio to decrease two points from 2005. OneBeacon's 2006 results included $29 million in current accident year catastrophe losses compared to $81 million in2005, which included $69 million from hurricanes Katrina, Rita and Wilma. Offsetting these decreases was a one point increase from higher incentive compensation expenses in 2006 and a one pointincrease from $20 million of expenses associated with actions taken to reduce long-term occupancy costs, including OneBeacon's move to its new U.S. headquarters in Canton,Massachusetts. In addition, OneBeacon's 2005 results included a $54 million gain from the settlement of its retiree medical plan, which reduced the 2005 combined ratio by three points. Theretiree medical plan, which had been frozen in 2002, was terminated and an independent trust was established and funded to provide benefits to covered participants. These actions relieved OneBeacon ofits future retiree medical obligations and triggered recognition of the gain. The majority of the gain was recorded as a reduction of other underwriting expenses with a portion of the gain reflectedas a reduction in loss and LAE because a portion of the expense of the retiree medical program was allocated to the claims department.

OneBeacon'stotal revenues decreased 8% in 2006 to $2,327 million from $2,534 million in 2005. The decrease was due principally to a 6% decrease in earned premiums in 2006,primarily due to the aforementioned sale of NFU, which had $130 million of earned premium in 2005. Net investment income decreased to $188 million in 2006 compared to $242 millionin 2005, primarily due to the receipt of a $35 million special dividend on Montpelier Re common shares in the first quarter of 2005. Net realized investment gains increased to$156 million in 2006 compared to $123 million in 2005. The 2005 period included a realized loss of $55 million due to an other-than-temporary impairment onOneBeacon's investment in Montpelier Re common shares. Other revenues in 2006 included a pre-tax

53

gainof $30 million from OneBeacon's sale of the renewal rights to its Agri business and a pre-tax loss on the exchange of its investment in MSA of $13 million (after tax,the MSA exchange resulted in an $8 million net realized gain). Other revenues in 2005 included $34 million in gains recorded from the sales of two subsidiaries, NFU and Traders andPacific Insurance Company.

Specialty Lines. Net written premiums for specialty lines decreased by 20% to $438 million in2006 from $549 million in 2005, mainly due to the aforementioned sales of NFU and Agri. Excluding NFU and Agri, specialty lines net written premiums increased $41 million, or 12%, from2005. The increase was mainly due to a $30 million increase in net written premiums at OBPP to $179 million in 2006 from $149 million in 2005, principally driven bylong-term care and lawyers professional liability products. Net written premiums for all other specialty lines businesses increased modestly or were essentially flat when compared with theprior year.

Thespecialty lines combined ratio for 2006 increased to 89% from 87% for 2005. The increase was primarily due a higher expense ratio, which rose to 34% in 2006 from 31% in 2005. Theincreased expense ratio was primarily due to a one point increase in incentive compensation expense in 2006 and the favorable impact in 2005 of the settlement of the retiree medical plan, whichlowered that year's expense ratio by two points. The loss and LAE ratio for 2006 was essentially flat when compared to 2005. Excluding the impact of the aforementioned reallocation of reserves torun-off, which reduced the 2005 loss ratio by three points, the loss and LAE ratio improved in 2006.

Commercial Lines. Net written premiums for commercial lines increased by 10% to $718 millionin 2006 from $654 million in 2005, as net written premiums increased for both the middle market division and the small business division. The increase in net written premiums in the middlemarket division was experienced in property and inland marine products as well as at OBSP. The increase in small business was experienced in small business package products.

Thecommercial lines combined ratio for 2006 decreased to 95% from 99% for 2005. Lower catastrophe losses caused the commercial lines 2006 combined ratio to decrease six points from2005. Commercial lines 2006 results included $31 million in current and prior accident year catastrophe losses, which included $21 million in losses incurred from hurricanes Katrina,Rita and Wilma, compared to $64 million in 2005, which included $56 million in losses incurred from hurricanes Katrina, Rita and Wilma. Partially offsetting this decrease was thefavorable impact of one point related to the benefit of the settlement of the retiree medical plan in 2005 and two points related to the reallocation in 2005 of IBNR reserves to run-off.

Personal Lines. Net written premiums for personal lines decreased by 12% to $801 million in2006 compared to $910 million in 2005. The decrease was primarily attributable to reduced writings at AutoOne due to the size of New York's assigned risk pool significantly decreasing andreduced writings in traditional personal lines due to an increasingly competitive automobile market and state-mandated rate decreases in Massachusetts. With respect to the New York assigned risk pool,assigned risk volumes declined to $253 million in 2006, down from $383 million in 2005 and $629 million in 2004. Assigned risk volumes in New Jersey are also expected to decline.The assigned risk pool in New Jersey declined to $141 million in 2006, down from $247 million in 2005 and $375 million in 2004. OneBeacon expects a continued reduction inAutoOne's premium volume in 2007 reflective of these trends.

Thepersonal lines combined ratio for 2006 increased to 96% from 92% for 2005. The loss and LAE ratio increased 1 point to 64% in 2006 from 63% in 2005, primarily due to favorable itemsin 2005. The personal lines 2005 loss and LAE ratio included the benefit of the settlement of the retiree medical plan and the favorable impact of the reallocation of IBNR reserves torun-off, which each reduced the loss and LAE ratio by approximately one point. The expense ratio increased to 32% in 2006, compared to 29% in the prior year, mainly due to increasedincentive compensation expenses of approximately one point in 2006 and the benefit of the settlement of the retiree medical plan in 2005, which decreased the 2005 expense ratio by approximately twopoints. In addition, the 2006 expense ratio was higher than the 2005 expense ratio by approximately one point as expense reductions were not proportional to reductions in earned premiums.

Run-off. For 2006, run-off business generated an underwriting loss of$44 million compared to an underwriting loss of $133 million in 2005. The 2005 results included $107 million in adverse development, mainly from 2002 and prior accident years,which was primarily due to higher than anticipated defense costs and higher damages from liability assessments in general liability and multiple peril lines. As described above, 2005 also included areallocation of $34 million of IBNR reserves from ongoing lines of business to run-off.

White Mountains ended the
third quarter of 2007 with a fully diluted tangible book value per share of
$435, an increase of 3.7% for the quarter, 8.7% for the first nine months of 2007
and 18.8% for the twelve month period ended September 30, 2007, including
dividends. White Mountains adjusted comprehensive net income was $161 million
for the third quarter of 2007 compared to $211 million in the third quarter of
2006, and $354 million for the first nine months of 2007 compared to $377
million for the first nine months of 2006.

OneBeacon reported combined
ratios of 84% in the third quarter and 93% in the first nine months of 2007
compared to 94% and 96% in the third quarter and first nine months of 2006.
White Mountains Re reported a combined ratio of 94% for both the third quarter
and first nine months of 2007 compared to 89% and 108% in the third quarter and
first nine months of 2006. Esurance reported combined ratios of 118% and 114%
in the third quarter and first nine months of 2007 compared to 106% and 107% in
the third quarter and first nine months of 2006, while increasing its written
premiums 27% and 38% over the third quarter and first nine months of 2006.
White Mountains GAAP pre-tax total return on invested assets was 2.0% and 5.4%
for the third quarter and first nine months of 2007 compared to 2.7% and 5.5%
for the third quarter and first nine months of 2006. White Mountains bond
portfolio exceeded benchmarks with much less volatility and its equity
portfolio performed in line with the market. Both benefitted from the weakening
U.S. dollar.

We are a Bermuda-domiciled global multi-line property and casualty reinsurance company, with operations in North America, Europe and Bermuda. We write
property, casualty and related businesses through Folksamerica and Sirius, our two principal reinsurance subsidiaries. Folksamerica and Sirius have operating histories of over 25 and 60 years,
respectively, and have longstanding relationships with both ceding insurance companies and leading intermediaries. In addition, building upon our experience in Bermuda, we have created a separate
Bermuda operating entity, WMRUS, that specializes in analyzing catastrophe reinsurance and acts as our center of excellence for property catastrophe risk evaluation.

Our
business has grown organically and through acquisitions, and we have increased our capital base through both retained earnings and capital contributions from our parent, White
Mountains. For the year ended December 31, 2006, we wrote $2.1 billion of gross premiums written, of which 72% were generated in the United States and 28% internationally. We had total
GAAP equity of $2.4 billion, total regulatory capital of $2.6 billion and total assets of $8.0 billion as of December 31, 2006. We currently have $27 million of debt
outstanding. In addition, we are a co-borrower and co-guarantor with White Mountains on a joint $500 million credit facility. White Mountains has drawn approximately $320 million on the
facility. Following the incurrence of new senior indebtness, White Mountains intends to reduce its committment under the facility to $300 million. In connection with that incurrence of senior
indebtedness, White Mountains also intends to remove us as a co-borrower and co-guarantor, although there is no assurance that this will occur.

Folksamerica
and Sirius have their own underwriting, claims, actuarial, finance and general management functions, allowing them to operate on a decentralized basis to ensure focus on
target markets, lines and customers. The management teams of these companies are encouraged to be entrepreneurial, with the autonomy to make decisions on key operating matters while we provide
centralized support in key functions, including strong worldwide risk management discipline. To further this discipline, we recently consolidated our worldwide property catastrophe advisory business
in our new Bermuda company, WMRUS.

We
operate Folks Re Solutions, which is our run-off acquisitions business. Also, in April 2007 we expect to operate an additional business, Galileo, a weather risk
management business that our parent has informed us it intends to contribute to us.

40

We
believe our financial strength represents a key competitive advantage. The table below includes our subsidiaries' current financial strength ratings as well as other key metrics as of
and for the year ended December 31, 2006.

Folksamerica

Sirius

Other Operations(1)

2006 gross premiums

$1.1 billion

$1.0 billion



Cash and investments

$2.7 billion

$2.2 billion

$211 million

Regulatory capital

$1.2 billion

$1.4 billion

N/A

GAAP shareholder's equity

$1.3 billion

$1.0 billion

$165 million

Financial strength ratings

A.M. Best

A

A

N/A

Standard & Poor's

A

A

N/A

Moody's

A3

A3

N/A

Fitch

A

A

N/A

Product categories

 Property non-catastrophe

 Property non-catastrophe

 Property catastrophe

 Property catastrophe

 Casualty ex-Esurance

 Esurance

 Esurance

 Accident & Health

 Accident & Health

 Aviation & Space

 Agriculture

 Other

 Other

(1)

Includes
White Mountains Re, WMRUS and various intermediate holding companies.

In 2005, we reported net income of $66 million and produced a GAAP combined ratio of 114.0%, which included 23 points of losses, net of
reinsurance and reinstatement premiums, related to hurricanes Katrina, Rita and Wilma. In 2006, we reported net income of $282 million and produced a GAAP combined ratio of 100.3%, which
included six points of adverse reserve development on prior accident year losses, net of reinsurance and reinstatement premiums, related to hurricane Katrina, Rita and Wilma, and nine points related
to the Olympus reimbursement.

OneBeacons pre-tax income for
2005 was $332 million, compared to pre-tax income of $223 million for 2004,
and its combined ratio was 98% for 2005, compared to 99% for 2004.

Higher catastrophe losses caused OneBeacons 2005
combined ratio to increase approximately three points from 2004. OneBeacons
2005 results included $82 million in catastrophe losses, which included $69
million in catastrophe losses related to hurricanes Katrina, Rita and Wilma,
compared to $31 million of catastrophe losses in 2004. In addition, OneBeacons
2005 results included a $54 million gain from the settlement of its retiree
medical plan, which reduced the 2005
combined ratio by three points, and a release of approximately $20 million of
the New York assigned risk liability due to the shrinking of the New
York assigned risk pool, which reduced the 2005 combined ratio by one point.
OneBeacons 2005 and 2004 results also include $95 million and $100 million,
respectively, in adverse development, primarily relating to 2002 and prior
accident years, which impacted the combined ratio by approximately four points
in each year.

OneBeacons total
revenues decreased 9% in 2005 to $2,534 million, compared to $2,787 million in
2004, due principally to an 11% decline in earned premiums in 2005. The
decrease in earned premiums was partially due to lower commercial lines
premiums resulting from the sale of the renewal rights on most of OneBeacons
non-Atlantic Mutual New York commercial lines business to Tower Insurance Group
late in 2004. As a result of this transaction, approximately $110 million of
premiums written in 2004 were subject to this renewal rights agreement and were
not written by OneBeacon during 2005. OneBeacons commercial lines also had a
one-time premium increase of approximately $135 million in 2004 from the
assumption of unearned premium from the Atlantic Specialty transaction.

49

In addition, personal lines premium decreased in 2005
due to lower volumes in Massachusetts and New York. New Jersey Skylands
Insurance also had lower premiums in 2005 as compared to 2004.

Net realized investment gains for 2005 included a
realized loss of $55 million due to an other-than-temporary impairment with
respect to OneBeacons investment in Montpelier Re common shares. During 2005,
the market value of Montpelier Re common shares decreased from $38.45 per share
to $18.90 per share. OneBeacons original cost of this investment in 2001 was
$105 million, which was subsequently increased by $65 million in equity in
earnings recorded from 2001 to March 2004, the period in which OneBeacon
accounted for the investment under the equity method of accounting. The
impairment charge represented the difference between OneBeacons GAAP cost of
$170 million and the investments fair value of $116 million at December 31,
2005.

Other revenue for 2005 included $34 million in gains
recorded from the sales of two subsidiaries, NFU and Traders and Pacific
Insurance Company. During 2004, OneBeacon sold two of its subsidiaries, Potomac
Insurance Company of Illinois (Potomac) and Western States Insurance Company
(Western States), as well as its boiler inspection service business, for a
total gain of $22 million that was recognized in other revenue.

As a result of an
actuarial review completed in the fourth quarter of 2005, OneBeacon reallocated
some of its IBNR reserves from some of the ongoing lines of business to run-off
operations. This shifted $34 million of IBNR reserves from specialty lines ($10
million), commercial lines ($12 million) and personal lines ($12 million) to
run-off operations. This adjustment had no impact on OneBeacons total combined
ratio.

Specialty Lines. The specialty lines
combined ratio for 2005 was 85%, compared to 90% for 2004. The decrease in the
combined ratio was mainly due to the reallocation of IBNR reserves to run-off
operations and the settlement of the retiree medical plan, which reduced the
combined ratio by a total of five points. Specialty lines results in 2005
included $13 million of losses ($9 million at IMU and $4 million atAgri)
related to hurricanes Katrina, Rita and Wilma, which unfavorably impacted the
combined ratio by three points. In 2004, the combined ratio for specialty lines
was adversely impacted by two points ($11 million) from the four hurricanes in
the southeastern United States.

Net written premiums for 2005
decreased by 3% to $549 million, compared to $566 million in 2004, as increases
at OBPP, which included $28 million of net written premium from a renewal
rights agreement with Chubb Specialty Insurance that took effect during the
third quarter of 2005 were offset by the sale of NFU in the third quarter of
2005.

Personal Lines. The personal lines
combined ratio for 2005 was 91%, compared to 91% for 2004. The loss and LAE ratio
decreased in 2005 primarily due to strong homeowners results, aided by
favorable catastrophe experience resulting from a relatively mild winter and
lack of northeast wind events, as well as lower frequencies in OneBeacons
legacy auto business. The settlement of the retiree medical plan favorably
impacted the 2005 combined ratio by three points. In addition, the personal
lines combined ratio was favorably impacted by one point from the reallocation
of IBNR reserves to run-off operations.

Commercial Lines. The commercial lines
combined ratio for 2005 was 97%, compared to 98% for 2004. The reallocation of
IBNR reserves to run-off operations and the settlement of the retiree medical
plan reduced the combined ratio in 2005 by a total of five points. Commercial
lines results in 2005 included $56 million of losses related to hurricanes
Katrina, Rita and Wilma, which impacted the combined ratio by nine points,
while 2004 included storm losses of $13 million, which impacted the combined
ratio by two points. The commercial lines 2004 combined ratio was also
adversely impacted by transition and integration costs related to the Atlantic
Specialty transaction and adverse results from its non-Atlantic Mutual New York
commercial lines book.

Other Lines. Other lines for 2005
included approximately $107 million in adverse development, mainly from 2002
and prior accident years, which was primarily due to higher than anticipated
defense costs and higher damages from liability assessments in general
liability and multiple peril lines. In addition, during 2005, OneBeacon
reallocated $34 million of IBNR reserves from some of its ongoing lines of
business to run-off lines.